Hi Roy,
This error typically occurs if your MATLAB paths weren't properly set. When you installed PLECS Blockset, the installation wizard had you create a startup.m file (at 3:03 of the below video). This file is made to be initialized every time you boot MATLAB and, thus, let your MATLAB add the necessary PLECS and PLECS/demos folders to its path for you automatically. This will only happen, however, if the location of this startup.m file (the default is [your username]/Documents/MATLAB/) is also listed in your MATLAB path. Please verify that all three of these paths highlighted in this installation video are present in your "Set Path" window within MATLAB:
http://plexim.com/support/videos/installing-blockset-win. If your startup.m file was properly created and pointed to within MATLAB paths, you should get the PLECS and PLECS/demos paths added automatically upon MATLAB reboot. If you need to start the PLECS installation wizard manually for any reason, you may do so via a shortcut in the "PLECS Blockset" folder.
Regards,
Vitalik